KUALA LUMPUR: Alliance Bank has lowered its growth forecast for Malaysia to 4.1 per cent this year from 4.5 previously saying this was in light of the weak net exports and investments going forward.
Net exports contribute around 10 per cent of total Gross Domestic Product and a slowdown in the sector has material impact on overall GDP growth says its chief economist Manokaran Mottain.
The year-to-date gross exports growth rate had been weak at 0.8 per cent.
"Weaknesses in the exports sector are largely on the back of negative spillover effects from low commodity prices (therefore low average export unit price) and subdued global demand."
He said exports to key trading economies such as China, US and Singapore which collectively is close to 40 per cent of total Malaysian exports market, have been registering consecutive negative growths since early 2015.
"Even with the weak Ringgit exchange rate, it has failed to deliver a competitive boost to Malaysian exports performance, which reiterates that weak global demand situation is at play."
Private consumption, which make up almost half of the GDP), he said, continued to show resilience.
It grew by 5.3 per cent year-on-year in the first quarter.
"The measures to boost household disposable income introduced in the revised Budget 2016 (voluntary cut in the Employees Provident Fund contribution rate to 8 per cent and special income tax relief) could boost overall private consumption growth."
He estimates that could contribute up to 0.4 per cent point contribution to GDP in 2016, if fully realised.
The research house has upgraded its private consumption growth forecast to 4.0 per cent on expectations of positive spillover effect from the fiscal measures.
Mottain expects foreign investment growth prospects in the near term notwithstanding that infrastructure and public transport investment plans are in the pipeline.
"On the other hand, there are limited upside to public expenditure (investment and consumption – cumulatively 20 per cent of GDP) growth as the federal government remains committed to achieve a balanced budget by 2020. "
Alliance Bank expects inflation to grow by 3.0 per cent this year.
"We also do not expect any change in the Overnight Policy Rate change in upcoming Bank Negara monetary policy meetings unless full-year GDP performance falls significantly below the 4.0 per cent official lower bound target."